Buenos Aires 2001

Strategic Energy Challenges

There are four key challenges to enhance energy security and to promote greater harmony throughout the world: achieving commercial energy access for the two billion people in the world who do not now have it; improving political and legal stability at the global and regional levels; keeping all energy options open, including the safe use of nuclear power and the promotion of renewables; and, increasing efficiency through competition and technology diffusion. These challenges are closely related. Delegates to the Congress recognized that trade and technology drive economic growth which is the prerequisite for addressing poverty and energy accessibility. This, in turn, is closely linked to energy availability and energy acceptability. Acting now to achieve these goals will contribute to a reduction in tension and promote greater harmony in the world. The Congress addressed the following issues:

- Market reform including trade and regional integration: Experience with energy market reform in most countries has been beneficial in terms of energy acceptability and availability. Because conditions in developed and developing countries vary in terms of the use of energy subsidies, their political structure, or their resource base, each country needs to foster reforms consistent with its own structure and conditions; however, in all regions there is a need to accelerate energy trade and regional integration. Energy projects need to be planned on the basis of what makes economic sense for the region without undue regard to political boundaries. It is market reform and impartial regulation, which are the cornerstones for attracting private capital to specific energy projects. The elimination of producer subsidies is important but well targeted consumer subsidies could be justified, on a temporary basis, to address accessibility and affordability issues related to market reform. Energy consumers in every country should support reforms which improve customer choice, the quality of service, and affordable energy services;

- Appropriate regulation and institutions, particularly to address capacity and transmission bottlenecks: The number of independent regulatory agencies in the world is increasing, and they are found in countries with strong competition fostered by unbundling policies. Regulators have to be aware of new challenges facing integrated energy markets, such as long term planning and systems operation, trans-border infrastructure and dispute resolution, and harmonisation measures consistent with the terms of energy trade negotiated under the World Trade Organisation. Recent experience in places like California suggests that, since electricity cannot be stored, a market for capacity must be created as a substitute for storage (through negotiation or regulation), and the permits process must be streamlined. A similar problem exists for transmission infrastructure for both electricity and gas where the constraints on transmission access and capacity can undermine the pace and success of market reform. New interconnection and transmission (for both electricity and natural gas) are crucial. It is essential that effective decisions on market design and industry unbundling be taken rapidly in order to encourage the construction of new generation and transmission capacity in all regions of the world. The costs of new capacity for both generation and transmission to achieve a greater degree of reliability need to be recognized and covered. Because there is some evidence that regulated financial returns on transmission infrastructure are an inadequate incentive for new construction, regulators must introduce more friendly investment policies in order to encourage new capacity;

- Keeping energy options open to address safety and reliability: Criminal or other threats to energy infrastructure require long term risk management and contingency planning, but it is the role of governments to cooperate in combating such threats. The best way to enhance the reliability of energy services is through energy diversity and regional trade in energy services;

- Technology and the role of governments in basic research, capacity building, and protecting intellectual property rights: There are no significant new technologies in the short or medium term, which will reduce the significant share of fossil fuels in the total primary energy mix. However, new technologies for power plants, facilities management, residential use, and rural areas, will help drive a continuous process of efficiency improvement; if such technologies are rapidly diffused, they will also help address environmental concerns on a global basis. It is the opening up of markets, their regional integration and global trade which will accelerate the diffusion of technologies, especially in developing countries, to address the goals of commercial energy access, the quality and continuity of energy supplies, as well as the environmental acceptability of energy production, distribution and use;

- Local, regional and global environmental goals: Accelerated technology diffusion and market reform measures are helping to reduce local and regional pollution from the production, distribution and use of energy services. Keeping energy options open so that nuclear power, hydroelectric and other renewables maintain or increase their share of the global energy mix is the best way to address global environmental goals in the short to medium term. The global governance of greenhouse gas emissions reductions should be pursued by governments, in consultation with industry, so that the regulatory treatment of voluntary industry measures is consistent, and clear rules for emissions trading and clean development mechanisms can come into play quickly without upsetting national economies or excluding any energy option. Clean Development Mechanisms should be part of energy planning so that investments in new energy projects in developing countries, which link commercial energy access with emissions reductions, can be increased. It is important to acknowledge that the effective mitigation of global warming is the responsibility of all citizens as well as energy companies and governments; and,

- Ethics and the promotion of human dignity: The best way to address corruption and other ethical issues, worldwide, is to promote transparency and the rule of law. Energy companies care about social responsibility because, more and more, their shareholders, employees and customers care. Science and technology cannot be 'above ethics'. It is energy market reform and regional integration, which offer the most effective route to technology diffusion to address human suffering.